Residential land values are climbing but land sales have sunk to their lowest levels in a decade.

Land sales figures were down 40.4 per cent in the three months to December last year, compared with the same time in 2009, according to the Housing Industry Association and RP Data.

About 11,500 lots were sold in the quarter, down from 12,500 the previous quarter.

“The number of sales has been trending downwards for some time but, compared with the broader market, it does show that the vacant land market is suffering a lot more than built [housing] sales," RP Data research director Tim Lawless said.

However, median land values grew 4.1 per cent to reach $194,161 during the December quarter, and rose nearly 6 per cent over the course of 2010, according to the research.

“A lower number of sales would often suggest demand is drying up. However, with land prices continuing to rise, the fall away in land transactions is clearly supply related," Mr Lawless said.

“We’ve had above average population growth and that’s been a product of high overseas migration. What we really need to see is an expediting of land release, but instead we’ve seen land release go backwards," Mr King said.

Related Quotes

Company Profile

Sydney, Perth and Queensland’s Sunshine Coast have the highest median lot prices in the country, according to the research.

The cheapest land markets are southern Tasmania, Murraylands in South Australia, and northern SA.

Across all the states, land supply constraints were felt most in NSW, AMP chief economist
Shane Oliver
said. “NSW is the most severe while Victoria is a bit less [stressed]," Dr Oliver said.

“Victoria put more effort into releasing land. NSW is probably the other extreme, with very low vacancy rates and more constrained supply."

Another reason for slowing sales was the Reserve Bank of Australia’s interest rate rises last year, Mr King said. Home owners struggling with mortgage repayments were not the only ones that suffered, as climbing rates also curbed developer appetite to buy land and build residential housing.

“It’s very much an issue of affordability," Mr King said.

“We’ve had significant interest rate increases over 2010, and that has certainly taken a toll on demand for residential land, particularly the fact that the trading banks [raised rates] further than the RBA cash rate in November 2010."

Dr Oliver said the significant plunge in land sales was surprising, although the downward trend was consistent with the slowdown in national building approvals and housing finance figures.

“Unless there’s a dramatic improvement in affordability, then land sales will remain fairly weak.

“Unfortunately I think affordability will remain poor, so I can’t see a quick turnaround," he said.

While land values spike, experts are more optimistic about sales figures over the next 12 months.

RP Data predicts the 40 per cent drop will be the lowest point in land sales this year – and transactions will probably pick up over the next year.

“It’s hard for sales to fall lower than it is at the moment," Mr Lawless said.